Dispute resolution or settlement agreements (DRA)—that is, contracts on choice of law, choice of jurisdiction, or arbitration agreements—are contracts of a special kind. They allow parties to make a choice on the rights—applicable law—and remedies—competent forum, including procedural and conflict rules—which govern their relationship. Party autonomy, or the freedom to enter into DRA, enables contract parties to provide for legal certainty regarding the applicable law and dispute settlement mechanism. This is crucial in an international situation, although DRA are also used in purely domestic situations. Moreover, DRA are key to the so-called “law market,” where firms may bargain for the most efficient institutional framework for their transaction.Footnote 1 However, where DRA are included in the fine print of standard form contracts with less sophisticated contract parties, the question of legitimacy arises. For instance, where an opt-out of mandatory provisions is entailed or a constitutional right to a remedy is waived, a higher quality of consent might be required; one that is informed, instead of a simple manifestation of assent to the transaction. DRA are regulated by diverse instruments at the national, supranational, and international level. Despite their similarities, they are rarely discussed in a consistent fashion. In an effort to develop a coherent framework, in this Article I shall propose the following theses:
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1. Under the rule of law, everyone has a constitutional right to a remedy—that is, access to a court that decides a dispute over private rights and obligations according to the law of the land. Contract law is constituted by the substantive and procedural rules that specify under which conditions the state undertakes to enforce an agreement.
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2. While freedom of contract is subject to the mandatory provisions of the applicable contract law, party autonomy extends to reflexive contracting, in other words, agreements on which substantive and procedural rules shall govern a contractual relationship. To avoid the entailed bootstrapping paradox, party autonomy is conferred by reflexive contract law, that is, the national, supranational, and international rules which specify when states enforce DRA.
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3. As meta-rules constituting the institutional framework, reflexive contracts logically precede the remainder of the contract. Although regularly contained in the same document, according to the principle of severability they are construed as separate and independent with regard to their validity.
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4. In specifying the conditions under which reflexive contracts are enforced, reflexive contract law shall reflect the extent to which the different types of DRA, such as agreements on arbitration, choice of forum, or choice of law, interfere with the constitutional right to a remedy. Coherent requirements as to the form and validity of consent, ex-ante information, or ex-post judicial control must be proportional to the entailed dangers.
A. The Constitutional Right to a Remedy
Under the title “right to a fair trial,” the European Convention on Human Rights guarantees that “in the determination of his civil rights and obligations … everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.”Footnote 2 Although the right to bring a civil claim before a court ranks as one of the universally recognized fundamental principles of law, it is not explicitly part of the text of many constitutions. This is most obvious where there is no written constitution at all, as in England. However, the UK Supreme Court confirmed a “constitutional right of access … to the courts”Footnote 3 in 2017, stating:
In English law, the right of access to the courts has long been recognised. The central idea is expressed in chapter 40 of the Magna Carta of 1215 (“Nulli vendemus, nulli negabimus aut differemus rectum aut justiciam”), which remains on the statute book in the closing words of chapter 29 of the version issued by Edward I in 1297: “We will sell to no man, we will not deny or defer to any man either Justice or Right.” Those words are … a guarantee of access to courts which administer justice promptly and fairly.Footnote 4
The court continues:
The significance of that guarantee was emphasised by Sir Edward Coke in Part 2 of his Institutes of the Laws of England (written in the 1620s, but published posthumously in 1642). Citing chapter 29 of the 1297 charter, he commented: “And therefore, every Subject of this Realme, for injury done to him in bonis, terris, vel persona [in goods, in lands, or in person], by any other Subject … may take his remedy by the course of the Law, and have justice, and right for the injury done to him, freely without sale, fully without any deniall, and speedily without delay. Hereby it appeareth, that Justice must have three qualities, it must be Libera, quia nihil iniquius venali Justitia; Plena, quia Justitia non debet claudicare; & Celeris, quia dilatio est quaedam negatio [Free, because nothing is more iniquitous than saleable justice; full, because justice ought not to limp; and speedy, because delay is in effect a denial]; and then it is both Justice and Right.” (1809 ed, pp 55−56). More than a century later, Blackstone cited Coke in his Commentaries on the Laws of England (1765−1769), and stated: “A … right of every [man] is that of applying to the courts of justice for redress of injuries. Since the law is in England the supreme arbiter of every man’s life, liberty, and property, courts of justice must at all times be open to the subject, and the law be duly administered therein.” (Book I, Chapter 1, “Absolute Rights of Individuals”).Footnote 5
From these sources, the “right to a remedy” made it to the United States. As Schuman observes:
The remedy clause derives ultimately from [the] Magna Carta, where it took the form of a promise extracted from King John to reform his courts. These institutions had fallen into disrepute for their practice of selling writs—the most powerful and efficient writs fetching the highest prices. Hence, King John’s promise: “To no one will we sell, to no one will we refuse or delay, right or justice.” In the hands of Lord Coke, whose influential commentary on [the] Magna Carta was among the most frequently read legal texts in colonial America, the King’s promise underwent a radical change and emerged in pertinent part as follows: “[E]very Subject of this Realm, for injury done to him in [goods, land or person] … may take his remedy by the course of the Law, and have justice and right for the injury done him, freely without sale, fully without any denial, and speedily without delay.” In this form, the remedy clause was urged upon the Framers of the Federal Bill of Rights, but to no avail. The right did, however, appear in several of the original state constitutions, and from there was copied into the constitutions of many states later admitted.Footnote 6
Today, the right to a remedy appears in forty state constitutions,Footnote 7 while the US Supreme Court remains reluctant to read a right to access to court into the federal constitution.Footnote 8 Drawing on Blackstone the Court acknowledges the right to remedy to be a fundamental part of the common law, but it remains unclear to what extend access to court is a federal constitutional right either under the due process clause or as part of the right to petition under the first amendment.Footnote 9 As a German observer of the debate one wonders, however, why it is not argued that a constitutional right to access to court is intrinsic to the seventh amendment’s right to trial by jury in ceratain civil cases, as the latter cannot be exercised without the former.
Also in the German Constitution of 1949 (GG) there is no explicit reference to a right to access to court in civil proceedings, but according to settled case-law of the Federal Constitutional Court (BVerfG) a general right of access to justice (Justizgewährungsanspruch) derives from the principle of the rule of law in conjunction with fundamental rights.Footnote 10 Contrary to the UK and US Supreme Courts, the BVerfG gives no reason for the existence of that right, except that it is intrinsic to the rule of law. However, German legal scholars refer to social contract theory rather than the Magna Carta.Footnote 11
According to civil recourse theory, the constitutional right to a remedy is part of the non-negotiable terms of the social contract, as it is reciprocal to each person’s waiver of its natural right to self-help.Footnote 12 The people submit to the peace of the realm (Friedenspflicht), from which the state’s monopoly in the legitimate use of force (Gewaltmonopol) emerges, only in return for and as long as access to courts is effectively provided (do ut des).Footnote 13 This argument builds on Hobbes and Locke as follows.
Hobbes in Leviathan remarks:
Eightly, is annexed to the Soveraigntie, the Right of Judicature; that is to say, of hearing and deciding all controversies, which may arise concerning Law, either Civill, or naturall, or concerning Fact. For without the decision of Controversies, there is no protection of one Subject, against the injuries of another; the Lawes concerning Meum and Tuum are in vaine; and to every man remaineth, from the naturall and necessary appetite of his own conservation, the right of protecting himselfe by his private strength, which is the condition of Warre; and contrary to the end for which every Common-wealth is instituted.Footnote 14
And Locke in his Second Treatise writes:
[I]t is easy to discern, who are, and who are not, in political society together. Those who are united into one body, and have a common established law and judicature to appeal to, with authority to decide controversies between them, and punish offenders, are in civil society one with another: but those who have no such common appeal, I mean on earth, are still in the state of nature, each being, where there is no other, judge for himself, and executioner; which is, as I have before shewed it, the perfect state of nature.Footnote 15
And this puts men out of a state of nature into that of a commonwealth, by setting up a judge on earth, with authority to determine all the controversies, and redress the injuries that may happen to any member of the commonwealth; which judge is the legislative, or magistrates appointed by it. And where-ever there are any number of men, however associated, that have no such decisive power to appeal to, there they are still in the state of nature.Footnote 16
[W]hoever has the legislative or supreme power of any commonwealth, is bound to govern by established standing laws … by indifferent and upright judges, who are to decide controversies by those laws; and to employ the force of the community at home, only in the execution of such laws.Footnote 17
This is mirrored by Blackstone, who more comprehensively quoted, says:
Thus, for instance, allegiance is usually, and therefore most easily, considered as the duty of the people, and protection as the duty of the magistrate; and yet they are, reciprocally, the rights as well as duties of each other. Allegiance is the right of the magistrate, and protection the right of the people.Footnote 18
The rights of the people of England … may be reduced to three principal or primary articles; the right of personal security, the right of personal liberty; and the right of private property.Footnote 19
But in vain would these rights be declared, ascertained, and protected by the dead letter of the laws, if the constitution had provided no other method to secure their actual enjoyment. It has therefore established certain other auxiliary subordinate rights of the subject, which serve principally as outworks or barriers to protect and maintain inviolate the three great and primary rights, of personal security, personal liberty, and private property.
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A third subordinate right of every Englishman is that of applying to the courts of justice for redress of injuries. Since the law is in England the supreme arbiter of every man’s life, liberty, and property, courts of justice must at all times be open to the subject, and the law be duly administred therein. The emphatical words of magna carta[s], spoken in the person of the king, who in judgment of law (says sir Edward Coke) is ever present and repeating them in all his courts, are these; “nulli vendemus, nulli negabimus, aut differemus rectum vel justitiam: and therefore every subject,” continues the same learned author, “for injury done to him … by any other subject … may take his remedy by the course of the law, and have justice and right for the injury done to him, freely without sale, fully without any denial, and speedily without delay.”
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Not only the substantial part, or judicial decisions, of the law, but also the formal part, or method of proceeding, cannot be altered but by parliament.Footnote 20
It follows that the obligation of everyman to keep the King’s peace—abstaining from self-help and private wars—and the right to redress—access to court and right to a remedy—are reciprocal, conditional, and co-original.Footnote 21 Let me underpin this with a simple example:
First, in a state of nature: A boy sits in a café in a village watching TikTok on his phone as a pick-up with five heavily armed men arrives. The driver approaches the boy and asks, very politely, if he could have the mobile. The young man hands it over and the driver makes a call. When finished he puts the phone to his pocket and sits down with the other men at the neighboring table, drinking. After a while, the boy asks, equally polite, if he could have his mobile back. The driver says no, it was a present, the other men laughing out. If this happens in a state of civil war—current examples are abundant—the boy has these options: he could let it go, as he is too weak to help himself; or he could ask his uncle for help, who might come back with his more or less heavily armed men and ask for the phone. Now the uncle and the driver can negotiate, and if they cannot agree on whether it was loan or gift, they could agree to have a neutral decide the dispute as arbiter, let’s say the local religious leader. But, if they cannot agree on anything, the only option is to fight, risking the life and health of their men, and facing future retaliation by the allies of today’s defeated party.Footnote 22
Second, under the rule of law: Imagine the same situation at our conference in Bremen, to which you brought your valuable original edition of Blackstone’s commentaries. I am asking you, very politely, if I could have the book, and once you pass it over deliberately, I am keeping it as a present. Are you entitled to take the book back, potentially with the help of other participants? According to section 859, paragraph 2 of the German Civil Code (BGB), “if a movable thing is taken away from the possessor by prohibited interference, the possessor may use force to remove it from the interferer who is caught in the act or pursued.”Footnote 23 However, section 858, paragraph 1 of the BGB defines “prohibited interference” to be against, or without, the will of the possessor.Footnote 24 As you deliberately handed me the book over, that is not the case. More generally, under section 229 of the BGB:
A person who, for the purpose of self-help … removes a thing … is not acting unlawfully if help cannot be obtained from the authorities in good time and there is the danger, if no immediate intervention takes place, that the realization of the claim will be frustrated or become considerably more difficult.Footnote 25
In addition, under section 230, paragraph 2 of the BGB on limits of self-help, in the case in which things—your book—are removed from my possession, “then … a writ of attachment in rem is to be sought.”Footnote 26 So, no self-help allowed. You could try to negotiate or to convince me to submit to arbitration, but if I do not agree, you will have to let me walk away with your book and sue me later for return in the Bremen courts, which exercise general—coercive—jurisdiction over me. In other words, in case of doubt a judgment by default will be enforced without or against my will.Footnote 27
However, what if the Bremen court will not hear your case for any reason—as the judge is my former PhD-student, or my colleague, or the city of Bremen does not employ enough judges so that there is a backlog of several years? This constitutes a denial of justice. For, if the German state prohibits self-help based on its right to allegiance, you, in turn, have a right to protection—that is, a remedy by the course of the law—and have justice and right for the injury done to your private property rights, freely without sale, fully without any denial, and speedily without delay, to use the words of Coke again. If the state strips someone of his rights by denying access to the courts, this person is no longer bound by the peace of the realm, but can legitimately make use of its natural right to self-help. However, if that happens to an alien, under international law that person has first to refer to the authorities of its home-state, which will press Germany on the diplomatic level to do justice.Footnote 28 If to no avail, your country may grant license for a reprise, that is, to take your right in your own hands.Footnote 29
To sum-up, the constitutional right of access to court is so essential, that it is intrinsic to any state operating under the rule of law, whether or not explicitly granted in the text of its constitution. For, if justice is denied by a state, this amounts to a cancellation of the social contract, which puts the very existence of the state with its monopoly on the legitimate use of force at bay, so civil war is looming.
B. Reflexive Contract Law
Before I can elaborate on the term reflexive contract law in Section IV, I shall briefly define the terms contract law in Section I, and international contract law in Section II, and introduce the term reflexive contracts in Section III.
I. Contract Law
A workable definition of contract law is the following: “A contract is a legally enforceable agreement, one the state will enforce by placing its coercive powers at the disposal of either party if the other fails to perform. The rules that specify when the state will do so constitute our law of contracts.”Footnote 30 Although in contract law classes, procedural issues usually are set aside and contract law is taught as a branch of substantive private law—namely the norms concerning formation, construction, performance, discharge, and remedies for breach of contractual obligationsFootnote 31—a comprehensive interpretation of the definition includes the conditions under which a judgment is rendered and enforced.Footnote 32
Interdisciplinary approaches to contracting stress that state contract law is not the only, and presumably not even the most important, mechanism of contract enforcement, that is, norms and institutional arrangements for their implementation: “[M]ost behaviour in commercial settings is relatively unaffected by the legal enforceability of contracts.”Footnote 33 In real life, parties to a transaction employ various alternative governance mechanisms to support their exchange, which in one or the other way seek to embed the contract in a self-enforcing arrangement.Footnote 34 These strategies are discussed under headings such as “Relational Contracts,”Footnote 35 “F-Connections,”Footnote 36 “Credible Commitments,”Footnote 37 or—as the most radical solution—“Vertical Integration.”Footnote 38 Moreover, in submitting a transaction to a “Private Legal System,” most commonly in the form of industry-specific arbitration, parties may opt-out of the legal system.Footnote 39
However, while additional challenges are posed by a situation of “lawlessness,” where state law is “very costly, slow, unreliable, biased, corrupt, weak, or simply absent,”Footnote 40 that is, in a quasi-state of nature, in a state with workable legal institutions, or in other words, under the rule of law, most private ordering mechanisms work “in the shadow of law”:Footnote 41 First, if the parties to a transaction abstain from making any provisions for alternatives, state contract enforcement is the default mechanism. Second, most alternatives to state contract enforcement are based on support by state law—for example, enforcement of letters of credit, escrow, or arbitration agreements; company law in case of vertical integration; libel and slander law regarding the reputation mechanism; and the right to cancel a contract or to abstain from concluding one with respect to exclusion as a social sanctions. Third, offer and demand on the market for alternative governance mechanisms are shaped on the one hand by state contract law—that is, its perceived outcome and efficacy—and on the other hand by competition law.Footnote 42
II. International Contract Law
Against this brief account of theories of “contract law,” adding the term “international” may have several implications. First, it could be the contract which extends or is going beyond national boundaries. In private international law, a contract is considered international, where the elements relevant to the situation are located in more than one country.Footnote 43 This is obvious, if the parties to a contract are domiciled in different countries. But even where this is not the case, the contract is international if an involved branch, agency, or other establishment of one contracting party, or the place of performance, the place where immovable property is situated, or the place of contracting is located abroad.Footnote 44 If a contract involves an international situation, the concept of “our law” in the above given definition of contract law is no longer self-explaining. However, the definition continues to be accurate in that each state maintains a set of codified or judge-made rules on the conditions, under which the courts of that state may acquire jurisdiction over a dispute arising from an international contract and according to which country’s substantive contract law the judges will resolve the dispute.Footnote 45 Moreover, the procedural laws of each state define, under which conditions parallel proceedings in related actions in the courts of different states may be avoided and foreign judgments will be recognized and enforced.Footnote 46 Thus, in specifying when the state will enforce a contract, the conflict-rules of private international lawFootnote 47 form part of “our law of contracts.”
From the perspective of the parties to an international contract, however, there is no such thing as “our law of contracts.” Instead, there are multiple domestic laws of contract, which according to their autonomous conflict-rules may or may not acquire jurisdiction over the contract, depending on connecting factors such as minimum contacts, significant relationship, most close connection, and the like.Footnote 48 Private international law tackles the resulting uncertainties by granting private autonomy: most states enforce agreements on forum selection—jurisdiction or arbitration—and on choice of law.Footnote 49 Such choice may determine the courts and laws of the state where one of the contract parties is domiciled, or a neutral venue and law.Footnote 50 In both cases it is somewhat difficult, to perceive it as “our law of contract” in the same way as this holds true for a purely domestic contract, as the chosen law and venue are not common, but remain alien to one or both contract parties.
This leads us to another implication of the term international contract law. Here, it is not only the contract, but the “law of contracts,” which extends beyond national boundaries and, thus, is truly common to all parties to international contracts as “our law of contracts.” The idea of an international law of contracts, common to all civilized nations, that is, those engaged in cross-border commerce, as reflected by Roman ius gentium, or a customary law of all merchants, as reflected by medieval Law Merchant (lex mercatoria), is not new.Footnote 51 However, it became somewhat outdated with the rise of the modern concept of law, according to which the authority of law is ultimately rooted in the sovereign nation state. To prevent cross-border trade from suffering, the idea to create a “world private law” by means of international treaty harmonization arose as early as in the late nineteenth century.Footnote 52 This endeavor, however, turned out to be more difficult than expected. More than one hundred years of work within different public international organizations like The Hague Conference on Private International Law (HCCH), the International Institute for the Unification of Private Law (UNIDROIT), and the UN Commission on International Trade Law (UNCITRAL) have resulted in little but fragments, for example, the 1980 UN Convention on the International Sale of Goods (CISG).Footnote 53 After all, the hopes for an international contract law based on multilateral treaty harmonization have been somewhat deflated.Footnote 54
III. Reflexive Contracts
The meaning of the adjective reflexive is directed or turned back on itself, or marked by or capable of reflection.Footnote 55 In sociology the term reflexivity refers to an act of self-reference: German sociologist Niklas Luhmann defined it as the application of a mechanism or process to itself, as in learning how to learn.Footnote 56 In a legal system, examples are legislating on legislation, as in the making of a constitution; adjudicating on adjudication, as in court judgements on judicial independence, the rights to a remedy, to a lawful judge, or to trial by jury; or regulation of self-regulation, as in association and corporate law.Footnote 57 Another instance of self-reference in the legal system is contracting on contracting, a common example being a contract clause providing that any modification of the contract shall only be in writing, leading to the legal conundrum whether that clause applies to itself or may be changed by formless agreement.Footnote 58
Conventional wisdom will have it that freedom of contract is conferred to parties by the state under the conditions provided by contract law. This is to say a contract is not valid by virtue of the parties’ will, but because state contract law says so. Thus, there is no such thing as a “contrat sans loi.”Footnote 59 Although much of substantive contract law applies only by default, where contract parties did not provide otherwise, the mandatory rules of contract law cannot be derogated by agreement.Footnote 60 From the perspective of freedom of contract, mandatory rules perform an enabling function where the procedural requirements of the formation of a valid contract are concerned, such as consent, capacity, mistake, formal requirements and the like; they perform a regulatory or protective function, where they put substantive restrictions on self-determination in order to protect one—as in consumer protection rules—or both parties to the contract—as in the rule that liability for intentional damage cannot be waived in advance—or the public good—as in the rule that to protect competition a cartel contract is null and void.Footnote 61 In summary, freedom of contract is enabled and limited by mandatory contract law, why the latter can be said to be the constitution of the former.Footnote 62
It follows that another instance of a reflexive contract is a contract which changes the applicable mandatory rules of contract law, including the mandatory procedural arrangements for the resolution of a future dispute arising from said contract. Party autonomy is the freedom of contract parties to do exactly that: to contract on contract law.
First, in a choice of law agreement, contract parties order a future judge or arbitrator to apply the contract law of country B to the contract, rather than the contract law of country A, which would have applied by default—that is, without that agreement.Footnote 63 As the enabling and regulatory mandatory norms of country A and B may vary to a considerable extent, parties in fact are allowed to contract away the mandatory rules of country A, however, only in return for the mandatory rules of country B to apply.Footnote 64 It follows that a contract, which would be void under the law of country A, but is valid under the law of country B, is somewhat self-validating.Footnote 65
Second, in a forum selection agreement parties contract on the place of jurisdiction. Where the courts of more than one state may exercise jurisdiction, as in a cross-border situation, parties determine which state shall have international jurisdiction. The selection of a court which would not have jurisdiction without the agreement is called prorogation.Footnote 66 If the agreement confers exclusive jurisdiction to the courts at a certain place and/or in a certain country, the parties instruct all other courts, which could exercise default jurisdiction according to the applicable local procedural laws, not to hear the case. The exclusion of jurisdiction of an otherwise competent court is called derogation.Footnote 67 It follows that an exclusive forum selection agreement implies party consent to a denial of justice by the otherwise competent judges.Footnote 68
Third, in an arbitration agreement parties contract out of the state judicial system and substitute their right to a remedy for a private form of final dispute resolution.Footnote 69 Based on a valid agreement to arbitrate, the contracting states of the New York Convention require their courts to stay proceedings and refer the dispute arbitration upon request by one party. Moreover, the resulting award is final and and enforced as though it were a judgment.Footnote 70 It follows that an arbitration agreement implies party consent to a denial of justice by all state courts and submittance under the execution of the award by state power.Footnote 71
In choosing the applicable contract law, the parties to a DRA “do a legislative act,” as the reporter for the American First Restatement of Conflicts of Law, Beale, observed.Footnote 72 Moreover, as the very practice of contracting is enabled by contract law determining what constitutes a valid contract, DRA perform an “auto-constitutional”Footnote 73 function and, thus, suffer from the “Munchhausen-Trilemma,” a reference to the problem of bootstrapping, based on the story of Baron Munchausen pulling himself and the horse on which he was sitting out of a mire by his own hair.Footnote 74 To give an example: as DRA regularly form part of the main contract, what happens if the contract is valid under the chosen contract law, but void under the otherwise—objectively—applicable contract law, or vice versa? Courts and conflict scholars try to unfold this paradox by means of hierarchization. The DRA and the main contract are considered to be several and independent from each other regarding their validity, so that the DRA precedes the main contract, the validity of which is tested on the basis of the chosen law in the chosen forum—in other words, the principle of severability.Footnote 75
However, when it comes to the existence and validity of consent as to the DRA itself, severability is of little help. Here, the generally agreed upon solution is to refer to the putative law and forum, if a DRA exists prima facie.Footnote 76 This is to say, that the validity of a choice of law clause is in principle evaluated on the basis of the allegedly chosen law,Footnote 77 and the validity of a forum selection clause is evaluated by the chosen court according to the lex fori prorogatum,Footnote 78 whereas the validity of an arbitration agreement is evaluated by the arbitral tribunal on the basis of the arbitration law at the seat of the arbitration, which in turn can be freely chosen by the parties.Footnote 79 Again, it turns out that a well-advised and well-considered choice would be for a law and forum which would validate the DRA, so that DRA are fairly self-validating. “So extraordinary a power in the hands of any two individuals is absolutely anomalous,” as Beale put it.Footnote 80 The situation is even more dramatic, where the substantive validity of a DRA is challenged by one party, but in order to solve this issue the DRA is enforced on the basis of the allegations of the other party for its presumed validity.Footnote 81 To sum-up, DRA as reflexive contracts are of an exceptional kind, a contract like no other.Footnote 82
IV. Reflexive Contract Law
So, how come that party autonomy is universally recognized today? The solution to many of the above-mentioned paradoxes is found again in a form of hierarchization—that is, the proper distinction of substantive law and conflict rules. This solution was suggested by the German scholar Haudek, who argued that party autonomy is conferred to contract parties as a legislative policy by virtue of the conflict rules of the forum.Footnote 83 These rules I will call reflexive contract law, that is, the law constituting—enabling and restricting—DRA as reflexive contracts.
Although this hierarchization is somewhat ahistorical, as party autonomy was originally not promoted by legislatures, but rather by judges for the convenience of the solution to the somewhat undecidable questions of which law should objectively govern a contract and which forum shall be competent to decide a resulting dispute.Footnote 84 Judges followed scholars like Savigny, who referred to the place of performance of an obligation. Because it was generally agreed that parties could contract on the place of performance, from here it was no more than a short-cut to state that parties could agree on the applicable law and forum.Footnote 85 It follows that party autonomy was judge-made law in many states, before it, as part of the general trend to codify choice of law rules, became a legislative policy.Footnote 86
While the hopes for a substantive world contract law were deflated, scholars of private international law embraced the harmonization of conflict rules to promote international decisional harmony (Entscheidungseinklang) as a second best solution.Footnote 87 When this approach materialized in the codification of party autonomy by international conventions, for arbitration agreements by the 1958 New York Convention,Footnote 88 for forum selection agreements by the 1968 Brussels Convention—later transformed into the EU Brussels I Regulation—and the 2005 Hague Choice of Court Convention,Footnote 89 and for choice of law agreements by the 1980 Rome Convention—later transformed into the EU Rome I RegulationFootnote 90—and the 2015 Hague Principles on Choice of Law in International Commercial Contracts—although not a convention,Footnote 91 the statist concerns were finally overcome.Footnote 92 Helpful in this regard were also the public policy exceptions in all three conventions, and more specifically the Rome Convention’s distinction between the domestic or ordinary mandatory norms of substantive law which “cannot be derogated from by agreement” in a purely internal situation and the internationally or overriding mandatory norms which are to be applied “irrespective of the law otherwise applicable to the contract” even in an international situation by virtue of the will of the legislator.Footnote 93
The described reflexive contract law framework, which outside the EU with its Brussels and Rome Regulations next to the mentioned conventions consists of various international, regional, or national instruments including restatements of judge-made law,Footnote 94 is praised for the legal certainty it provides, as sophisticated contract parties can determine the contract law and forum to govern their relationship predictably in a DRA at the time of the conclusion of the main contract.Footnote 95
However, as the vast majority of DRA are not individually negotiated, but contained in a standard form introduced by one contract party, the question arises if the by the other party agreed to the proposed DRA. Whether and how a contract clause contained in a standard form becomes part of the contract is a question of general contract law, regarding offer and acceptance as part of consensus theory. In addition, in Europe it is governed by the Unfair Contract Terms Directive (UCTD),Footnote 96 which contains procedural and substantive rules applicable to business-to-consumer contracts, and also a transparency rule, which figures somewhere in between. Similarly, the US rules applicable in this regard are consolidated in the new American Restatement of Consumer Contracts.Footnote 97
At this point the results of an empirical study that my former PhD-student Mascha Hesse has conducted on German jurisprudence regarding DRA contained in standard form contracts shall be reported.Footnote 98 She found out that German courts in the majority of cases did not enforce choice of law and forum selection clauses under the EU Rome and Brussels Regime, and arbitration agreements under the New York Convention were voided to an even higher degree, while the analysis did not reveal any consistent or coherent approach of the courts towards DRA, so that no black-letter-rules for a potential restatement of law could be distilled.Footnote 99 Admittedly her study might suffer from a bias insofar that judgements which void a DRA are more likely to be reported than judgments which uphold a DRA. However, her results from a country like Germany, which has a reputation for supporting the principle of party autonomy, are so devastating that the assumption—heralded by most scholars of private international law—that party autonomy is enabling legal certainty in international contracting, must be dismissed.Footnote 100 It is important to note that the study was not limited to business to consumer contracts, but the results extended to business to business situations, where the most pertinent reason for the non-enforcement of forum selection and arbitration clauses was that the parties did not meet the requirements of a written agreement.Footnote 101
To sum-up we can say that the question of consent to DRA is—despite the successes of international treaty harmonization in that area—less clearly regulated by reflexive contract law than expected.
C. Informed Consent to DRA: Constitutional Requirements
DRA as reflexive contracts interfere in one or the other way with the constitutional right to a remedy.Footnote 102 An arbitration agreement entails a full waiver of the right, a choice of court agreement opens access to the chosen court, while barring access to the otherwise competent courts, if the choice is exclusive. In an international choice of court agreement the choice of a foreign court includes also a change in the applicable lex fori with its mandatory provisions—such as right to trial by jury—and public policy. Finally, an agreement on choice of law leaves access to court unaltered, but may result in a situation where otherwise applicable—ordinary as opposed to overriding—mandatory provisions are not applied by the judge.Footnote 103
Thus, from a constitutional law perspective the extent and intensity of the waiver of the right to a remedy according to the law of the land is very high in case of an arbitration agreement, high in case of an exclusive international jurisdiction agreement in favor of a foreign court, lower in a local choice of court agreement, and relatively low in case of a choice of law agreement. Generally speaking, the threshold for valid consent to each of these DRA should vary correspondingly, while it is important to stress that the potential impediments of a specific DRA, usually a combined choice of law and forum selection or arbitration clause, on the right to access a court have to be evaluated in the individual case and separately for both parties to the DRA.
Nancy Kim reminded us in her brilliant book on “Consentability,”Footnote 104 that in constitutional law specific requirements apply as to the question, if and under which conditions individuals may agree to an infringement or waiver of their human rights. Moreover, she made it clear that the constitutional requirements are not necessarily identical to what we know on consent or assent from general contract law or standard form contract theory.Footnote 105 The concept of informed consent evolved originally with regard to both the practice of medicine and research conducted with human volunteers.Footnote 106 In Germany, for instance, medical treatment—even where medically indicated and performed in accordance with medical standards—constitutes an act of personal injury and therefore requires the informed consent of the patient, where the challenge is to find balance between patient autonomy and information overload.Footnote 107 The same is true in many other areas of law including EU data protection or consumer law, and more recently even in EU private international law, where the CJEU held that under the transparency requirement of the UCTD businesses have to inform consumers that, despite a choice of law clause under Article 6, paragraph 2 Rome I Regulation, they are still protected by the mandatory rules of the law of their habitual residence.Footnote 108 Interestingly, with regard to a sports arbitration clause for the CAS, the Strasbourg Court (ECtHR) held that the entailed waiver of the right to access a court under Article 6, paragraph 1 of the ECHR is valid only if based on free will and not forced on the other party.Footnote 109 In another case it explained that “the waiver of a right guaranteed by the Convention … must … be given in full knowledge of the facts, that is to say on the basis of informed consent.”Footnote 110
Regarding the legal requirements for valid consent and, thus, enforceability of a DRA, the constitutional law principle of proportionality should apply. Today, proportionality is accepted as a general principle of constitutional law by many countries around the world.Footnote 111 Structured proportionality analysis next to rationality and minimal impairment includes proportionality as such, or in other words, asking whether the intrusion on the challenger’s rights can be justified, while a greater intrusion requires a stronger justification.Footnote 112 In the words of Alexy, when constitutional principles collide the principle of proportionality in the narrower sense is identical with the law of balancing, which states: “The greater the degree of non-satisfaction of, or detriment to, one principle, the greater must be the importance of satisfying the other.”Footnote 113 Accordingly, the relation between the degree to which a DRA interferes with the constitutional right to a remedy according to the law of the land and the presence of informed consent as the necessary justification for an infringement of that right as required by the law of balancing can be visualized as follows in Figure 1.
Figure 1. Indifference Curve
This is not the place to go into much detail with regard to the consent requirements regarding DRA. The main point of this Article is the suggestion that these requirements should be designed in a coherent way in view of the potential dangers they entail in view of the constitutional right to access to court and to have a remedy according to the law of the land. With a view to reflexive contract law—the international, European, and domestic rules enabling and limiting party autonomy—I shall conclude with some preliminary observations as to the proportionality of the legal framework and its practical application by the courts.Footnote 114
First, as to form requirements both Article II, paragraph 2 of the 1958 New York Convention for arbitration agreements and Article 25, paragraph 1 of the Brussels Ia Regulation for jurisdiction agreements require an agreement in writing.Footnote 115 The absence of a document signed by both parties or of a written and signed offer and acceptance, which either contain the DRA itself or a reasonable notice of the intention to include a standard form containing the DRA and a reasonable opportunity to read it, is the main reason why so many arbitration and jurisdiction agreements are void according to the mentioned analysis of German case law.Footnote 116 Article 3, paragraph 1 of the Rome I Regulation for agreements on choice of law, however, does not contain a form requirement and even allows for an implied choice. This seems to be coherent with the above analysis of the respective dangers generally entailed in these clauses.
Moreover, as to weaker contract parties such as consumers, both Article 19 of the Brussels Ia Regulation and Article 6, paragraph 2 of the Rome I Regulation limit the effect of agreements on choice of court and law to a considerable extent so that such agreements may work in favor of the consumer only, unless entered into after a dispute has arisen.Footnote 117 It follows that blanket assent to standard form DRA suffices as no dangers with regard to a potential waiver of the right to a remedy are entailed. For other, weaker contract parties, such as employees or insurance holders, similar protections apply. Regarding arbitration agreements Section 1031, paragraph 5 of the German Civil Code of Procedure provides that arbitration agreements with a consumer must be separate from the main contract and personally signed.Footnote 118 However, this applies only where the seat of the arbitration is in Germany, while Germany with regard to the recognition and enforcement of foreign arbitral awards did not make use of the commercial reservation under Article I, paragraph 3 of the New York Convention. This seems to be rather incoherent.
Further, regarding ex-post judicial control of the fairness of standard form DRA under the applicable law—UCTD as transposed into the putative law—one can resume that German judges regularly do not exercise a test for substantive unconscionability of choice of law and jurisdiction clauses, as their general admissibility is regulated by the Rome I and Brussels Ia Regulations, which are understood to be final and conclusive in view of any substantive restrictions. However, with regard to arbitration agreements the courts do exercise substantive control, especially as to their effects on access to justice in the individual case. For instance, German courts refused enforcement of arbitral awards against four German franchisees of Subway, because the arbitration clause provided for “a hearing to be held in New York,” although the franchisor, a subsidiary of the US-based mother company, was seated in The Netherlands.Footnote 119 This was seen as an unjustified barrier to the exercise of the procedural right to a fair hearing, and, thus, a sort of denial of justice.
Not only an inconvenient place of proceedings, but also other hurdles to a fair trial, such as disproportionate up-front administrative and filing fees for initiating arbitration may lead to an arbitration clause being unconscionable and therefore invalid. Thus, in Uber Technologies Inc. v. Heller the Supreme Court of Canada voided the DRA contained in the standard form services agreement of Uber, which H had to accept to become a driver for Uber in Toronto. The DRA required H to resolve any dispute with Uber through mediation and arbitration in the Netherlands. Initiating the process required up-front administrative and filing fees of US$14,500, plus legal fees and other costs of participation. The fees represented most of H’s annual income. Under these circumstances the court held: “Respect for arbitration is based on its being a cost-effective and efficient method of resolving disputes. When arbitration is realistically unattainable, it amounts to no dispute resolution mechanism at all.”Footnote 120
If the arbitration clause, in turn, provides for arbitration rules which guarantee a fair equivalent to the right to a remedy according to the law of the land, or even a better standard when compared to state provided judicial services, there seems to be no reason to complain.Footnote 121 Thus, the 2014 Consumer Arbitration Rules of the AAA seem to prioritize the provision of fair proceedings.Footnote 122 Also, several arbitration institutions offer online and/or small claims procedures which seem to be adapted to the legal needs of small and medium-sized enterprises (SME).Footnote 123
Finally, with regard to the transparency requirement of the UCTD, the CJEU has developed a duty to inform consumers on the limiting effect of Article 6, paragraph 2 of the Rome I Regulation on choice of law clauses, but did not transfer that rule to the limiting effect of Article 19 of the Brussels Ia Regulation with regard to choice of court clauses, while for arbitration agreements a limiting rule comparable to Article 19 of the Brussels Ia Regulation is lacking, so that there is nothing to inform the consumer about.Footnote 124 For Germany, Mascha Hesse concludes her analysis of German jurisprudence on DRA with the rather disillusioned statement that the current legal framework for DRA neither produces the promised legal certainty for international commerce, nor a coherent protection of the free will of those parties which are confronted with DRA in a standard form contract dictated by the other contract party.Footnote 125 A more coherent approach to DRA may develop from a thorough comparative analysis.
Acknowledgements
I dedicate this article to my academic teacher Gunther Teubner, who while I was writing this text, on April, 30 2024 celebrated his 80th birthday. I owe him too much to be listed here.
Competing Interests
The author declares none.
Funding Statement
The author declares none.
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